A few blocks down Orizaba, in the heart of the Roma neighborhood’s main strip of trendy gastropubs, Alexis Arce, a 27-year-old chef, sat down at a table near the sidewalk entrance to his seafood restaurant, Pacifico 7. As waiters shuttled plates laden with fried fish burritos and golden-brown fried shrimp tacos al gobernador, Arce eyed the torrents of rain crashing on the sidewalk outside. “You can make good money with a taco stand, but it’s not as glamorous as having a restaurant,” Arce said. As groups of young professionals hurried in from the storm -- a daily part of life during Mexico City’s rainy season -- Arce explained, “We could have made a food truck, but that doesn’t give you space to seat people when it rains.”
But, aside serving as a refuge from inclement weather, a formal restaurant can have its downsides. “Running a stand is more profitable. You don’t pay rent. You don’t pay taxes,” he said. Formal restaurants face challenges in getting permits and, because of their high fixed costs, can be vulnerable to extortion and abuse by corrupt government officials.
Mexico’s President Enrique Peña Nieto has made small business development a key component of his plan to boost his country’s economy. In June he announced a new program designed to provide financing and business advice to the country’s entrepreneurs. During his speech, Peña Nieto acknowledged that Mexico’s experience with entrepreneurship, “has not been sufficiently successful.”
“To help the businesses and business owners in Mexico, this year the National Entrepreneur’s Institute will invest nine billion pesos to help 300,000 entrepreneurs and 180,000 micro, small, and medium [sized] businesses,” Peña Nieto said.
“With these resources we’ll promote a favorable environment in which good ideas and good projects will find fertile soil to prosper and contribute to the economic and social development of our country,” he added.
Two months later, during Mexico’s official National Entrepreneur’s Week, Peña Nieto explained his proposed fiscal reforms, which include tax hikes on consumer goods and a simplified tax code for both small and large businesses. During a speech on August 6, Peña Nieto said, “The proposal includes steps to make sure that employees of small businesses are the first to benefit from universal social security.” On the same day, Peña Nieto also launched a program called the Network of Aid for Business-owners to coordinate government programs designed to help the operators of PYMEs, the Spanish acronym for small and medium businesses.
But in spite of the panoply of new programs, Mexico still has a long way to go when it comes to boosting formal sector employment and reducing economic informality. Right now Mexico collects only 8.5 percent of GDP in taxes, the lowest figure for any member of the Organization of Economically Developed Countries, a club of advanced economies. Furthermore, Mexico lags behind many of its peers when it comes to bank lending. Earlier this year after Spanish bank BBVA announced a plan to invest $3.5 billion in Mexico, Luis Videgaray, Mexico’s Minister of Finance, gave a public address in which he explained that “In Mexico, bank lending as a percentage of Gross Domestic Product is only 26.2 percent, while in Brazil it’s as high as 40.3 [percent] and in Chile, 81 percent.”
“In Latin America [in general] the average is around 50 percent,” he added.
Restricted access to credit is one aspect of Mexico’s economy that discourages people from starting small formal-sector businesses. Overall, although Mexico’s official unemployment rate is only 5 percent, around 60 percent of the country’s workforce is employed in the informal sector.
On a recent Saturday afternoon, Crecencia Robles, a thin, 47-year-old taqueria owner, topped off the containers of salsa on the table in front of her barbacoa taco stand on a quiet side street in the south of Mexico City’s Roma neighborhood.
As she shoveled heaps of slow-roasted lamb meat onto tortillas for a customer, she explained, “we’ve had [the taco stand] for generations…my dad worked here.”
Together with her children, Robles roasts the meat in an outdoor oven, and then serves it to La Roma’s residents from Thursday afternoon until Sunday evening. She has never sought out a bank loan and hasn’t considered opening a formal restaurant. Robles handed over a plate stacked with two tortillas heaped with fatty chunks of meat to a slender woman in tight, trendy jeans.
“It’s a bit informal,” Robles explained. “I just pay for the use of the space.”